An asset such as an automobile or a piece of property that a person uses to take out a loan, promising to give the asset to the lender if loan payments cannot be met.

Collateral also refers to the collection of receivables, such as mortgages, which are used to back the Interest and/or principal Security. In this sense, it is a form of Security. Collateral is important for lenders where companies Default on their Debt. In such cases, hard assets such plant, property and equipment may be able to be repossessed and liquidated.